LEGACIES OF INEQUALITY: New evidence from Brazil of the role of climate in long-term economic outcomes

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The environment can play an important role in driving inequality and long-term economic development, according to new research by Evan Wigton-Jones, to be presented at the Economic History Society’s 2017 annual conference.

Analysing data from a national census in Brazil conducted in 1920, his study shows that warmer regions of the country with high rainfall were characterised by plantation economies, with a wealthy agricultural elite and a large underclass of poor labourers. In contrast, cooler and drier areas were conducive to smaller family farms, and hence resulted in a more equitable society.

The research also shows that the effects of this inequality have had ramifications for contemporary socio-economic welfare in Brazil. Not only has local inequality persisted throughout the twentieth century, but it has also hindered present-day municipal development.

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The author explains the findings in more detail:

Recent years have witnessed a renewed interest in issues of economic inequality. My research offers a contribution to this discussion by analysing the effects of inequality within Brazil.

I first show that the climate is a key determinant of long-run inequality in Brazilian context. I use data from a national census conducted in 1920 to show that warmer regions with high rainfall were characterised by plantation economies, with a wealthy agricultural elite and a large underclass of poor labourers. In contrast, cooler and drier areas were conducive to smaller family farms, and hence resulted in a more equitable society.

I then use information from the 2000 census to show that this local inequality has persisted for generations: areas that were historically unequal in 1920 are generally unequal today as well.

Finally, I show that greater long-term inequality inhibits regional development. I also obtain evidence that inequality affects local governance, as municipal spending on health, education and welfare is significantly lower in more economically unequal areas.

To show the climate’s influence on local inequality, I create an index that quantifies the relative suitability of land for plantation agricultural production. I base this metric on the temperature and precipitation requirements of different crops that are uniquely plantation or smallholder in their method of production. For example, sugarcane has historically been produced on large plantations, while wheat was often cultivated on small farms.

I then show that localities with a favourable climate for plantation agriculture contained a more unequal distribution of land. To measure the concentration of land ownership, I calculate a Gini index – a standard measure of inequality that ranges from 0 (perfect equality) to 100 (one individual holds all land).

As Brazil’s economy was predominantly agrarian in 1920, this distribution of land is a good proxy for that of income and wealth. I combine this with data on municipal spending in the 1920s to show that local governments with higher land inequality spent less on education, health, public goods and public electricity. For example, a one unit increase in the Gini index is associated with a .76 percentage point decline in such spending.

The effects of this inequality have ramifications for contemporary socio-economic welfare in Brazil. Not only has local inequality persisted throughout the twentieth century, but it has also hindered present-day municipal development. Here I measure local development using the municipal-level human development index (HDI) – a metric that accounts for education, public health and income – for the year 2000.

I show that historically unequal areas score much lower on the HDI: a one unit increase in 1920 land inequality is associated with a reduction of .38 points in this index (which, like the Gini index, is measured on a scale from 0 to 100, with a higher score indicating greater development).

Furthermore, the legacies of historical inequality are still manifest in contemporary local governance: a one unit increase in historical inequality is associated with a .49 percentage point decrease in municipal-level welfare spending for the year 2000.

These findings suggest several important conclusions:

First, the environment may play an important role in determining inequality and long-term development, even within countries.

Second, economic disparities can persist for generations.

Lastly, inequality can have a corrosive effect on welfare and governance, even at a local level.

It should be noted, however, that this study has focused on inequality within Brazil. The extent to which these findings can be generalised to other settings requires further study.

ENDS

Legacies of Inequality: The Case of BrazilEvan Wigton-JonesUniversity of California, Riversideewigt001@ucr.edu(+1) 585.698.0393